BIL:3896
TYP:General Bill GB
INB:House
IND:19970410
PSP:Kirsh
SPO:Kirsh
DDN:BBM\9053JM.97
CBN:1212
RBY:Senate
COM:Banking and Insurance Committee 02 SBI
LAD:19980319
SUB:Reinsurance credit not granted unless form of trust and amendments approved by Insurance Commissioner
HST:3896
BodyDateAction DescriptionComLeg Involved
______
Senate19980602Recommitted to Committee02 SBI
Senate19980602Reconsidered vote whereby
read third time and enrolled
Senate19980602Recalled from Legislative Council
Senate19980521Read third time, enrolled for
ratification
Senate19980520Read second time
Senate19980513Recalled from Committee,02 SBI
placed on the Calendar
Senate19980324Introduced, read first time,02 SBI
referred to Committee
House19980320Read third time, sent to Senate
House19980319Read second time, unanimous
consent for third reading on
Friday, 19980320
House19980319Amended
House19980318Committee report: Favorable with26 HLCI
amendment
House19970410Introduced, read first time,26 HLCI
referred to Committee
TXT:
[3896-1 ]
Indicates Matter Stricken
Indicates New Matter
RECALLED
May 13, 1998
H. 3896
Introduced by Rep. Kirsh
S. Printed 5/13/98--S.
Read the first time March 24, 1998.
[3896-1 ]
A BILL
TO AMEND SECTION 38-9-200, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO CAPITAL, SURPLUS, RESERVES, AND OTHER FINANCIAL MATTERS REGARDING INSURANCE COMPANIES, REINSURANCE CREDITS, AND LIABILITY REDUCTIONS, SO AS TO REVAMP THE SECTION BY DELETING CERTAIN PROVISIONS AND LANGUAGE AND BY ADDING PROVISIONS THAT PROVIDE, AMONG OTHER THINGS, THAT THE ASSUMING INSURER SHALL SUBMIT TO EXAMINATION OF ITS BOOKS AND RECORDS BY THE DIRECTOR OF THE DEPARTMENT OF INSURANCE AND BEAR THE EXPENSE OF EXAMINATION, THAT CREDIT FOR REINSURANCE SHALL NOT BE GRANTED UNLESS THE FORM OF THE TRUST AND ANY AMENDMENTS TO THE TRUST HAVE BEEN APPROVED BY THE INSURANCE COMMISSIONER OF THE STATE WHERE THE TRUST IS DOMICILED OR THE INSURANCE COMMISSIONER OF ANOTHER STATE WHO, PURSUANT TO THE TERMS OF THE TRUST AGREEMENT, HAS ACCEPTED PRINCIPAL REGULATORY OVERSIGHT OF THE TRUST, THAT THE FORM OF THE TRUST AND ANY TRUST AMENDMENTS MUST BE FILED WITH THE INSURANCE COMMISSIONER OF EVERY STATE IN WHICH CEDING INSURER BENEFICIARIES OF THE TRUST ARE DOMICILED, THAT THE TRUST FUND FOR A SINGLE ASSUMING INSURER SHALL CONSIST OF FUNDS IN TRUST IN AN AMOUNT NOT LESS THAN THE ASSUMING INSURER’S LIABILITIES ATTRIBUTABLE TO REINSURANCE CEDED BY UNITED STATES CEDING INSURERS, AND THAT THE ASSUMING INSURER SHALL MAINTAIN A TRUSTEED SURPLUS OF NOT LESS THAN TWENTY MILLION DOLLARS.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION1.The purpose of Section 38-9-200 of the 1976 Code is to protect the interests of insureds, claimants, ceding insurers, assuming insurers, and the public generally. The General Assembly declares that its intent in enacting this code section is to ensure adequate regulation of insurers and reinsurers and adequate protection for those to whom they owe obligations. In furtherance of this state interest, the General Assembly provides a mandate that upon the insolvency of a non-U.S. insurer or reinsurer that provides security to fund its United States obligations in accordance with this code section, the assets representing the security must be maintained in the United States and claims must be filed with and valued by the state insurance regulator with regulatory oversight, and the assets shall be distributed in accordance with the insurance laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic United States insurance companies. The General Assembly declares that the matters contained in this code section are fundamental to the business of insurance in accordance with 15 U.S.C. Sections 1011 and 1012.
SECTION2.Section 38-9-200 of the 1976 Code, as amended by Act 370 of 1994, is further amended to read:
“Section 38-9-200.(A) Credit for reinsurance must be allowed a domestic ceding insurer as an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection (B), (C), (D), (E), or (F). If meeting the requirements of subsection (D) or (E), the requirements of subsection (G) must be met also.
(B) Credit must be allowed when the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this State or approved as a reinsurer by the director or designee provided by Section 38-5-60.
(C) Credit must be allowed when the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this State. An accredited reinsurer is one which:
(1) files with the director or designee evidence of its submission to this state's jurisdiction;
(2) submits to this state's authority to examine its books and records;
(3) is licensed to transact insurance or reinsurance in at least one state, or for a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance, in at least one state;
(4) pays an initial submission fee of four hundred dollars and annually pays a four hundred dollar fee by March first;
(5) files annually with the director or designee a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement and:
(a) maintains a surplus as regards policyholders of not less than twenty million dollars and whose accreditation has not been denied by the director or designee within ninety days of its submission; or
(b) maintains a surplus as regards policyholders of less than twenty million dollars and whose accreditation has been approved by the director or designee. No credit is allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the director or designee after notice and hearing.
(D) Credit must be allowed when the reinsurance is ceded to an assuming insurer which is domiciled and licensed in, or for a United States branch of an alien assuming insurer is entered through, a state which employs standards regarding credit for reinsurance substantially similar to those applicable under this statute, and the assuming insurer or United States branch of an alien assuming insurer:
(1) maintains a surplus as regards policyholders of not less than twenty million dollars;
(2) submits to the authority of this State to examine its books and records. However, the requirement of item (1) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.
(E)
(1) Credit must be allowed when the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, defined in Section 38-9-220(B), for the payment of the valid claims of its United States policyholders and ceding insurers and their assigns and successors in interest. The assuming insurer shall report annually to the director or his designee information substantially the same as that required to be reported on the National Association of Insurance Commissioners annual statement form by licensed insurers to enable the director or his designee to determine the sufficiency of the trust fund. For a single assuming insurer, the trust must consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars. For a group including incorporated and individual unincorporated underwriters, the trust must consist of a trusteed account representing the group's liabilities attributable to business written in the United States and, in addition, the group shall maintain a trusteed surplus of which one hundred million dollars must be held jointly for the benefit of United States ceding insurers of a member of the group. The incorporated members of the group must not be engaged in any business other than underwriting as a member of the group and are subject to the same level of solvency regulation and control by the group's domiciliary regulator as are the unincorporated members. The group shall make available to the director or his designee an annual certification of the solvency of each underwriter by the group's domiciliary regulator and its independent public accountants.
(2) For a group of incorporated insurers under common administration which complies with the filing requirements contained in item (1), has transacted continuously an insurance business outside the United States for at least three years immediately before making application for accreditation, submits to this state's authority to examine its books and records and bears the expense of the examination, and has aggregate policyholders' surplus of ten billion dollars, the trust must be in an amount equal to the group's several liabilities attributable to business ceded by United States ceding insurers to a member of the group pursuant to reinsurance contracts issued in the name of the group. The group also shall maintain a joint trusteed surplus of which one hundred million dollars must be held jointly for the benefit of United States ceding insurers of a member of the group as additional security for liabilities. Each member of the group shall make available to the director or designee an annual certification of the member's solvency by the member's domiciliary regulator and its independent public accountant.
(3) The trust must be established in a form approved by the director or designee. The trust instrument must provide that contested claims must be valid and enforceable upon the final order of a court of competent jurisdiction in the United States. The trust must vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers and their assigns and successors in interest. The trust and the assuming insurer are subject to examination determined by the director or designee. The trust must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.
(4) No later than February twenty-eighth each year the trustees of the trust shall report to the director or designee in writing setting forth the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust may not expire before the next following December thirty-first.
(F) Credit must be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection (B), (C), (D), or (E) but only with respect to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.
(G) If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this State, the credit permitted by subsections (D) and (E) must not be allowed unless the assuming insurer agrees in the reinsurance agreements:
(1) that when the assuming insurer fails to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of a court of competent jurisdiction in a state of the United States, comply with all requirements necessary to give the court jurisdiction, and abide by the final decision of the court or of an appellate court in an appeal;
(2) to designate the director or designee or a designated attorney as its true and lawful attorney upon whom may be served lawful process in an action, a suit, or a proceeding instituted by or on behalf of the ceding company. This subsection does not conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes if an obligation is created in the agreement.
(H) The director may promulgate regulations to implement the provisions of this section and Section 38-9-210.
(A)Credit for reinsurance shall be allowed a domestic ceding insurer as an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection (B), (C), (D), (E), or (F). Credit only shall be allowed under subsections (B), (C), or (D) of this section as respects cessions of those kinds or classes of business which the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a United States branch of a alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. If meeting the requirements of subsection (D) or (E), the requirements of subsection (G) also shall be met.
(B)Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this State or approved as a reinsurer by the director or designee provided by Section 38-5-60.
(C)Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this State. An accredited reinsurer is one which:
(1)files with the director or designee evidence of its submission to this state’s jurisdiction;
(2)submits to this state’s authority to examine its books and records;
(3)is licensed to transact insurance or reinsurance in at least one state, or for a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance, in at least one state;
(4)pays an initial submission fee of four hundred dollars and annually pays a four hundred dollar fee by March first;
(5)files annually with the director or designee a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement and:
(a)maintains a surplus as regards policyholders of not less than twenty million dollars and whose accreditation has not been denied by the director or designee within ninety days of its submission; or
(b)maintains a surplus as regards policyholders of less than twenty million dollars and whose accreditation has been approved by the director or designee. No credit is allowed a domestic ceding insurer if the assuming insurer’s accreditation has been revoked by the director or designee after notice and hearing.
(D)(1)Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled in, or in the case of a U.S. branch of an alien assuming insurer is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this statute and the assuming insurer or U.S. branch of an alien assuming insurer:
(a)maintains a surplus as regards policyholders in an amount not less than $20,000,000 and
(b)submits to the authority of this State to examine its books and records.
(2)The requirement of Section (D)(1)(a) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.
(E)(1)Credit shall be allowed when the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, defined in Section 38-9-220(B), for the payment of the valid claims of its United States ceding insurers and their assigns and successors in interest. To enable the director to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the director or his designee information substantially the same as that required to be reported on the National Association of Insurance Commissioners annual statement form by licensed insurers. The assuming insurer shall submit to examination of its books and records by the director and bear the expense of examination.
(2)(a)Credit for reinsurance shall not be granted under this subsection (E) unless the form of the trust and any amendments to the trust have been approved by:
(i)the insurance commissioner of the state where the trust is domiciled; or
(ii)the insurance commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.
(b)The form of the trust and any trust amendments also shall be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of a court of competent jurisdiction in the United States. The trust must vest legal title to assets in the trustees of the trust for the benefit of the assuming insurers’ United States ceding insurers, and their assigns and successors in interest. The trust and the assuming insurer are subject to examination as determined by the director or his designee.
(c)The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust. No later than February twenty-eighth of each year the trustees of the trust shall report to the director or designee in writing setting forth the balance of the trust and listing the trust’s investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust may not expire before the next following December thirty-first.
(3)The following requirements apply to the following categories of assuming insurers:
(a)The trust fund for a single assuming insurer consists of funds in trust in an amount not less than the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers, and in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars.
(b)(i)In the case of a group including incorporated and individual unincorporated underwriters:
(I)For reinsurance ceded under reinsurance agreements with an inception, amendment, or renewal date on or after August 1, 1995, the trust consists of a trusteed account in an amount not less than the group’s several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group;
(II)For reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995, and not amended or renewed after that date, notwithstanding the other provisions of this section, the trust consists of a trusteed account in an amount not less than the group’s several insurance and reinsurance liabilities attributable to business written in the United States; and
(III)In addition to these trusts, the group shall maintain in trust a trusteed surplus of which one hundred million dollars is held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account; and
(ii)The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group’s domiciliary regulator as are the unincorporated members.